Hildebrand does the right thing

A question of standards and judgment

by David Marsh

Tue 10 Jan 2012

Philipp Hildebrand is an intelligent and resourceful man. Pleasant and thoughtful, too. He has done the right thing by departing as chairman of the Swiss National Bank. He has certainly demonstrated flaws. His resignation statements suggest he still doesn’t understand what he did wrong. I know and like Hildebrand. But, on his past days’ showing, I wouldn’t want him anyway near my defence team if I got into a legal scrape.

At a time when central banks all over the world have become far more active and much more exposed to publicity as a result of the financial crisis and its aftermath, central bankers have to show almost superhuman probity in all their financial dealings. This, manifestly, Hildebrand did not do. Still more importantly, he made errors of judgment which, if transferred to larger spheres, would cast doubt on whether he has the right mind-set to make extraordinarily difficult and complex decisions in the world of finance.

One should leave aside for the moment whether or not the leaking of the Hildebrand family’s foreign exchange transactions was politically motivated. (Certainly, in its later and most destructive phases, it was). Beyond this, public officials – or indeed almost anyone in the public eye – have to ask themselves a constant question: If this particular deal became a matter of public knowledge would I be embarrassed or worse? If the answer is Yes, then the simple solution is: Don’t do it. The motivation for the leak is less important than the fact that Hildebrand did not live up to standards that reasonable people would expect.

There are some specific points, too. First, not realising that discussing and (tacitly) authorising a large transaction by his wife to buy dollars on 15 August at a time when the SNB must have been intensively discussing its own intervention policy shows lack of judgment and foresight.

Second, not closing out the transaction immediately, which would have limited the damage and prevented any large-scale profits or losses, was an error. The e-mails released by the SNB indicate that Hildebrand was discomfited by confirmation that the trade took place and was aware of the compliance implications.

Third, once the decision was made not to close the transaction immediately, why did the Hildebrands add insult to injury by closing out the trade in October (after announcement of the SNB’s policy of ‘limitless’ intervention to hold down the Swiss franc) rather than keeping it open, which would have at least meant that gains would not have been crystallised? One of the documents released by the SNB says that Hildebrand told his banker Felix Scheuber at Bank Sarasin that ‘any currency position in the account must be held for at least six months in line with our internal SNB rules on personal investments’. The dollar sale in October appeared to have breached this rule.

Fourth, arranging for e-mails allegedly to be used for his defence to be released, when in fact they helped to harden the allegations against him, demonstrates naiveté, carelessness or over-confidence – perhaps a combination. This is all the more puzzling because Hildebrand is well aware of the lack ofcare in separating personal from professional activities that helped bring down Ernst Welteke, the previous president of the Bundesbank, in a probably less-serious conflict of interest in 2004.

Fifth, it is clear from the e-mail correspondence that the Hildebrands have a significant and reasonably actively traded portfolio in Swiss quoted shares. It could be that none of these shares are held in the SNB’s own portfolio. But at the very least it appears incautious to be such an active personal player in equity markets when his own publicly-owned institution has also, under his stewardship, become a large owner of equities.

Hildebrand’s defence yesterday that his ‘dollar lifestyle’ made such dealings near-inevitable smacks of special pleading. The fact remains that (for totally different reasons) a lot of central bankers have resigned recently – Axel Weber from the Bundesbank and Jürgen Stark and Lorenzo Bini Smaghi from the ECB – because of the diverse pressures and burdens of office.

Hildebrand will, of course, be back. The best example for him to bear in mind is that of Rupert Pennant-Rea, the foreign editor of the Economist, who was catapulted in a remarkably unprepared way to the deputy governorship of the Bank of England under the John Major government and had to resign in 1995 over a somewhat lurid extra-marital affair. He had since rebuilt a successful career in private business.

Here you have the nub of the matter. British central bankers resign over sex, Swiss over money. At least some things are predictable these days.